Muni Bonds Contain New Fine Print: Beware of Climate Change
The underwriters of municipal bonds are disclosing more about cities’ exposure to higher temperatures and rising seas.
Homes damaged by Hurricane Maria are seen in an aerial photograph taken over El Negro, Yabucoa, Puerto Rico, on Sept. 17, 2018.
Photographer: Xavier Garcia/Bloomberg
Investment banks have begun quietly sounding alarm bells about climate change. Their worries are showing up in the documents that accompany municipal bonds they underwrite.
When state and local governments issue debt, federal securities laws hold their bankers accountable for making sure that states and cities adequately disclose the risks bond buyers are taking on. These might include any lawsuits a town is facing, or how the sales taxes used to pay back bondholders could fluctuate in a recession. Now many of these documents include language about climate change, hurricane risks, and rising seas. “Every bank should be asking their clients about this risk,” says Christopher Hamel, a senior fellow at Municipal Market Analytics and former head of municipal finance at RBC Capital Markets.